Solar Industries' Q4 results beat expectations, and strong FY27 guidance supports the Buy thesis

Overview

This report is Goldman Sachs' commentary on Solar Industries' FY26 Q4 results. It argues that the company's results exceeded expectations, FY27 revenue guidance is strong, and structural improvement in defense and international businesses will be key catalysts for stock performance. After incorporating FY26 results and management guidance, Goldman Sachs raises its FY27E revenue forecast by 10%, but only modestly increases its EBITDA growth assumption due to potential margin pressure.

Core views

Goldman Sachs maintains its Buy rating on Solar Industries and continues to view it as the top pick among large-cap defense stocks under coverage. The core logic is: first, the defense order backlog is strong, giving high visibility to FY27 revenue; second, international business is expected to grow 30% YoY in FY27, and the non-defense business may also benefit from firmer ammonium nitrate prices; third, the company is expected to sustain ROE above 25%, with a cash conversion cycle better than peers.

Analysis framework

The report analyzes FY26 Q4 actual results, management guidance from the earnings call, order backlog, revenue mix by segment, capex plans, and the valuation model. Valuation uses a P/E approach, discounting FY31E EPS to FY28E using a 10.8% cost of equity and applying a 57x target P/E multiple to derive a 12-month target price of INR 19,590.

Methodology notes

• Valuation methodsP/E-based methodology

  P/E-based target price method

  Goldman Sachs discounts SOIL's FY31E EPS to FY28E using a 10.8% cost of equity and applies a 57x target P/E multiple to derive a 12-month target price of INR 19,590.

• Factor analysisGS Factor Profile

  Growth, financial returns, valuation multiples, and composite factor comparison

  Goldman Sachs' factor framework compares stocks with the market and peers on a percentile basis using metrics such as sales, EBITDA, and EPS growth; ROE, ROCE, and CROCI; and P/E, P/B, and EV/EBITDA.

• M&A scenarioM&A Rank

  M&A likelihood score

  Goldman Sachs uses an M&A rank from 1 to 3 to assess the likelihood of a company becoming an acquisition target; rank 1 indicates a high probability, rank 2 a medium probability, and rank 3 a low probability that is typically not included in the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Solar Industries (SLIN.BO)

  Core coverage name

  Strengths

  Strong defense order backlog, high FY27 revenue guidance, expected ROE above 25%, and a cash conversion cycle better than domestic defense peers.

  Weaknesses

  Higher capex has turned net cash into net debt, the working capital cycle has lengthened in the short term, and margins may be affected by the revenue mix and cost pressures.

  Comparison

  Goldman Sachs expects the company's FY29E EPS CAGR to be 21.3%, above the roughly 12% level for other large-cap defense stocks under coverage.

  Risks

  Defense order delays, execution risk in unproven defense areas, and elevated inflation risk in international regions.

• Defense business

  Primary growth engine

  Strengths

  FY27 revenue guidance of INR 45bn, defense order backlog of INR 180bn, and a book-to-bill ratio of about 6.83x.

  Weaknesses

  Revenue recognition depends on the pace of order execution and new product qualification.

  Comparison

  Its share of FY26 business rose sharply from 20% to 33%, making it a more important part of the revenue mix.

  Risks

  Order delays, delayed project certification, and supply-chain or geopolitical disruptions.

• International business

  Second growth engine

  Strengths

  Management expects 30% YoY growth in FY27 and expansion in South Africa, West Africa, Turkey, Kazakhstan, Southeast Asia, and Australia.

  Weaknesses

  It is more exposed to regional operations, exchange rates, inflation, and geopolitical risks.

  Comparison

  Its FY26 revenue share was 33%, slightly down from 36% previously, but it remains an important source of growth.

  Risks

  High inflation in international markets, slower-than-expected ramp-up of overseas capacity, and political and supply-chain risks.

Key data

• FY26 Q4 EBITDAINR 8bnUp 53% YoY, up 17% QoQ, and 3% above Goldman Sachs' estimate.
• FY26 Q4 EBITDA margin27.1%Below Goldman Sachs' estimate but up 215bps YoY, mainly driven by a higher share of defense revenue.
• FY27 total revenue guidanceINR 140bnManagement guidance implies 42% YoY growth.
• FY27 defense revenue guidanceINR 45bnManagement guidance implies 71% YoY growth, driven mainly by execution of the current order backlog.
• Defense order backlogINR 180bnAs of end-March 2026, cumulative order backlog was INR 210bn, of which defense accounted for INR 180bn.
• FY27 international business growth guidance30% YoYManagement expects international business to perform well in FY27.
• FY26 capexINR 17.4bnManagement expects FY27 capex to be INR 20.5bn.
• Net debtINR 8.67bnAt FY25 end the company had net cash of INR 2.76bn; net debt/EBITDA remains 0.32x.
• Working capital cycle109 daysInventory was intentionally increased due to geopolitical risks, above the usual roughly 90-day level; management expects stability over the next two quarters.
• Target priceINR 19,590The previous target price was INR 18,900.

Impact & implications

The report suggests that Solar Industries' near-term stock catalysts mainly come from strong FY27 growth guidance, defense order execution, and international expansion. Over the medium term, capacity expansion in high-margin defense materials, ammunition, UAVs, and strategic systems could improve the revenue mix and earnings quality. However, if ammonium nitrate prices soften, defense orders are delayed, or inflationary pressure in international markets intensifies, revenue and margins may come under pressure from FY28 onward.

Risks

• Delays in defense orders may affect revenue realization.
• The company is entering unfamiliar or emerging defense sub-segments, which creates execution and certification risks.
• High inflation in international markets could compress margins or affect demand.
• If ammonium nitrate and explosives prices cool in FY28E, non-defense revenue growth could be dragged down.
• Continued capex increases may create leverage and cash flow pressure.

What to watch

• Whether FY27 total revenue can reach the INR 140bn guidance.
• Whether defense revenue can reach INR 45bn and continue to absorb the INR 180bn order backlog.
• Whether international business can achieve 30% YoY growth in FY27.
• Whether the working capital cycle can fall from 109 days and stabilize over the next two quarters.
• Progress on trials, system readiness, and order wins for new products such as Bhargavastra, 155mm shells, and medium-caliber ammunition.
• The impact of ammonium nitrate prices and elevated commodity prices on FY27 and FY28 margins.